Latest / Liberty + Leadership / The Triumph of Economic Freedom with Dr. Donald J. Boudreaux

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The Triumph of Economic Freedom with Dr. Donald J. Boudreaux · Liberty + Leadership

• 0:02
  Speaker 1: Welcome to the Liberty and Leadership Podcast, a conversation with TFAS alumni, faculty and friends who are making an impact.
• 0:10
  Speaker 1: Today.
• 0:11
  Speaker 1: I'm your host, roger Ream.
• 0:13
  Speaker 1: Well, my guest today on the Liberty and Leadership Podcast is Professor Don Boudreau.
• 0:19
  Speaker 1: Don's a longtime friend of mine and of TFAS.
• 0:23
  Speaker 1: He's taught for us since 2010 in our summer programs a course called Economics for the Citizen.
• 0:28
  Speaker 1: He's also a fellow at the Mercatus Center, which is aligned with George Mason University.
• 0:34
  Speaker 1: He's the past president of the Foundation for Economic Education and is co-author of a great new book called the Triumph of Economic Freedom Debunking the Seven Great Myths of American Capitalism, co-authored with Senator Phil Graham.
• 0:48
  Speaker 1: It's a great book, and Don's here today to talk about this book and other topics in economics that are very timely.
• 0:55
  Speaker 1: My first question is how do you come up with seven myths?
• 0:59
  Speaker 1: I'm sure you probably had a list that was much longer, but you certainly picked some of the most important ones.
• 1:05
  Speaker 2: The idea for the number was Phil Graham's and he said you know, seven's a famous number.
• 1:09
  Speaker 2: It wasn't a superstitious thing, but the seven myths.
• 1:15
  Speaker 2: We wanted to keep the book to a readable length and I think we've managed to do that.
• 1:17
  Speaker 2: The seven that we tackle are indeed important, and failure to grasp them plays an important role in making public policy.
• 1:24
  Speaker 2: So we just chose those seven.
• 1:26
  Speaker 2: I suppose if there was a looming eighth that deserved to be in there, we would have included it, but it was Phil's idea to have just seven.
• 1:34
  Speaker 1: Well, the myths you've selected are very common myths, and they're held not just by those who may have a more progressive or left-leaning orientation, but even many who are on the right side of the political spectrum, who even support capitalism, share some of these myths.
• 1:52
  Speaker 2: Increasingly so.
• 1:53
  Speaker 1: Yeah, I'd like to tackle them.
• 1:54
  Speaker 1: But first of all, why do you think that we look back at the same events that occurred at a particular time in history and we reach such different conclusions so often?
• 2:03
  Speaker 2: As we say in the introduction to the book, everyone interprets the historical record and the facts they encounter through a particular theoretical lens.
• 2:12
  Speaker 2: You might not realize you have a particular theoretical lens in your head, but you do.
• 2:15
  Speaker 2: How you make sense of this very complex reality of which we are a part has to be filtered through some theory that you have of how the world works, our theory, both Phil Graham and I, are professional economists and so our theoretical lens is supplied by basic economics, not elaborate economics, but just basic common sense, straightforward, fundamental principles of economics.
• 2:37
  Speaker 2: The second reason is people do have a surprisingly wide misunderstanding of the factual record.
• 2:45
  Speaker 2: They just don't know what happened.
• 2:48
  Speaker 2: Just basic facts are not known.
• 2:51
  Speaker 2: Even worse, basic fallacies about the past are believed that simply have no basis in reality.
• 2:59
  Speaker 2: It was the latter that we really set out to tackle with the book.
• 3:03
  Speaker 2: The fallacies that we tackle are not incredibly nuanced or complicated ones, they are commonplace fallacies that we believe and I think we show it in the book can be debunked just by going to the historical record, and you don't have to nuance or massage the data very much of the historical record at all, just present the facts.
• 3:23
  Speaker 2: And our hope is that just presenting the facts in the way that we do will persuade people that a lot of what they believe about the past is incorrect.
• 3:31
  Speaker 1: Let's look at some of these myths that you've selected and that you discuss in the book, the first being that the Industrial Revolution harmed the conditions of the working man and made people miserable.
• 3:42
  Speaker 1: Much of that conveyed through literature, charles Dickens, and not so much through the economics.
• 3:49
  Speaker 1: But you take on that myth, talk about that one.
• 3:51
  Speaker 2: No one doubts the Industrial Revolution was real and that it certainly increased overall prosperity.
• 3:56
  Speaker 2: The fallacy is that the increase in prosperity came by the capitalists crushing the proletariat and so you had these happy peasants.
• 4:07
  Speaker 2: They weren't rich by our standards but they were doing okay.
• 4:10
  Speaker 2: They were frolicking in the countryside and their lives were clean and healthy and wholesome.
• 4:15
  Speaker 2: And then these factories came along and basically sucked these people into the bowels of the factories and the wealth that was created by the Industrial Revolution was extracted from the blood, sweat and tears of the peasants who worked in the factories.
• 4:28
  Speaker 2: And it's simply wrong.
• 4:29
  Speaker 2: You can look at the change in real wages, look at indicia of living standards, life expectancy, reductions in maternal mortality, a number of indicators of standard of living and ordinary people during the Industrial Revolution.
• 4:46
  Speaker 2: So the mid-18th century, through the mid-19th century, their lives were improving by our standards today, those lives were still very poor by the standards of the alternatives.
• 4:57
  Speaker 2: What these people would have done had there been no factory system.
• 5:00
  Speaker 2: By that standard the workers were doing pretty well.
• 5:04
  Speaker 1: They voluntarily chose to work in the factories because it was better than what they had as an alternative.
• 5:09
  Speaker 2: One of the things you mentioned in the book.
• 5:10
  Speaker 2: There was this wonderful book written about 10 years ago by English historian Emma Griffin, where she found several diaries written by ordinary workers during that era.
• 5:20
  Speaker 2: The book's called Liberty's Dawn and what these diary entries show is that these ordinary workers themselves accounted.
• 5:28
  Speaker 2: You know they described their experience Overwhelmingly.
• 5:31
  Speaker 2: These diaries show that these workers understood that their lives were being made better off by the opportunity to work in the towns that were industrializing.
• 5:40
  Speaker 1: Perhaps the biggest myth that you debunk in your book is the Great Depression, and there's several myths surrounding that.
• 5:47
  Speaker 1: Of course, one is what caused it?
• 5:49
  Speaker 1: Was it a failure of capitalism that plunged our economy into a depression?
• 5:53
  Speaker 1: And then also what ended it.
• 5:55
  Speaker 1: Was it New Deal policies that came along under FDR that brought us out?
• 5:59
  Speaker 1: Or was it the World War II?
• 6:00
  Speaker 1: Did that end the Depression?
• 6:01
  Speaker 1: There are a lot of interpretations of what caused it.
• 6:04
  Speaker 1: Talk about that issue as one myth that seems to be so ingrained in the minds of Americans.
• 6:10
  Speaker 2: Yeah, so let's talk about what caused the Great Depression first.
• 6:13
  Speaker 2: The formal recession began in August of 1929, so a few months before the stock market crash.
• 6:18
  Speaker 2: The basic myth is that, okay, in the 1920s income inequality grew.
• 6:24
  Speaker 2: We had this complete laissez-faire, free-for-all Speculation was running wild.
• 6:29
  Speaker 2: The growing income inequality by having more income in the hands of rich people, and rich people don't spend as large a share of their incomes as do poorer people, so consumption was too low.
• 6:41
  Speaker 2: By the end of the 1920s, all of this caught up with the American economy.
• 6:45
  Speaker 2: The stock market crashed when the speculative boom declined.
• 6:49
  Speaker 2: Herbert Hoover, of course, was president then.
• 6:51
  Speaker 2: I'm continuing with the myth, and the myth is that Herbert Hoover was a do-nothing president.
• 6:56
  Speaker 2: He just sat around in the White House being a devotee of laissez-faire, hoping things would improve.
• 7:02
  Speaker 2: Well, of course they didn't improve.
• 7:03
  Speaker 2: The worst years of the Depression were 32 and 33.
• 7:06
  Speaker 2: The election of 32 comes along and of course Hoover gets booted out, along with the Republicans in Congress.
• 7:15
  Speaker 2: And Roosevelt comes in and the Democratic Congress comes in with a new deal.
• 7:17
  Speaker 2: The myth continues that it wasn't perfect.
• 7:18
  Speaker 2: The new deal was a bit of experimentation, but eventually the new deal helped improve things and the final push to get us out of the Great Depression came with the increased spending during World War II.
• 7:30
  Speaker 2: That's the standard story.
• 7:31
  Speaker 2: First of all, in the 1920s there was no increased income inequality.
• 7:35
  Speaker 2: In fact, working classes got a larger share as shown by the Nobel Prize-winning economist Simon Kuznets of GDP.
• 7:42
  Speaker 2: They had a larger share at the end of the 1920s than they had at the beginning of the 1920s.
• 7:46
  Speaker 2: Spending on consumer goods was on pace.
• 7:50
  Speaker 2: There was no additional or extra stock market speculation.
• 7:55
  Speaker 2: What happened was the Federal Reserve was created in 1913 to be a lender of last resort, and there were some imperfections in the US banking system, mostly legislatively created.
• 8:04
  Speaker 2: There was this downturn in the economy that began in the summer of 1929.
• 8:09
  Speaker 2: Some banks began to fail, and the biggest failure was the Fed.
• 8:12
  Speaker 2: The Fed failed to do what it was established to do to serve as a lender of last resort.
• 8:18
  Speaker 2: It allowed the money supply from 1929 through early 1933 to decrease by more than 30%.
• 8:24
  Speaker 2: This is what Milton Friedman and Anna Schwartz called the Great Contraction.
• 8:27
  Speaker 2: There is no way any industrial economy can survive unscathed when the money supply is allowed to fall that far.
• 8:36
  Speaker 2: That's what caused the Great Depression.
• 8:39
  Speaker 2: What caused the Great Depression to last, however?
• 8:42
  Speaker 2: Herbert Hoover's interventions because he was not in fact the devotee of laissez-faire made worse by FDR's interventions.
• 8:51
  Speaker 2: So we spend a lot of time in the book talking about the work of the economic historian Robert Higgs, who has this idea of what he calls regime uncertainty, the interventions of Hoover and especially of FDR.
• 9:02
  Speaker 2: These were unprecedented.
• 9:04
  Speaker 2: The investors were frightened by the degree to which the government was becoming involved in the economy.
• 9:10
  Speaker 2: And when investors become frightened they stay on the sidelines.
• 9:14
  Speaker 2: And they continued to stay on the sidelines until the breakout of World War II.
• 9:19
  Speaker 2: Roosevelt needed the business people to be on board to help fight the war effort.
• 9:24
  Speaker 2: So when World War II breaks out, roosevelt becomes a bit more business-friendly.
• 9:28
  Speaker 2: He has to tone down his anti-business stuff.
• 9:30
  Speaker 2: But we're now in a wartime economy.
• 9:32
  Speaker 2: All the resources are being directed by the government into the war effort and whether you think that was great or terrible, that means that living standards fell even further in the private domestic economy.
• 9:43
  Speaker 2: We did not get out of the Depression by any measurable metric until the second half of the 1940s, after the war.
• 9:52
  Speaker 2: After the war, in part because Roosevelt had died.
• 9:55
  Speaker 2: After the war, after the war, in part because Roosevelt had died, truman was nowhere, nearly the anti-capitalist firebrand that Roosevelt became toward the end of the 1930s.
• 10:03
  Speaker 2: The Republicans surprisingly took control of both houses of Congress in the November 1946 elections, and Republicans, of course, were more business-friendly than the Democrats were.
• 10:13
  Speaker 2: Those developments returned calm to the economy, and so investors came off the sidelines and began investing again.
• 10:20
  Speaker 1: Now, one thing you didn't mention, which may be part of the story the Smoot-Hawley tariff under Hoover.
• 10:25
  Speaker 2: In June of 1930, it was just a calamitous trade tariff act.
• 10:30
  Speaker 2: It made things worse.
• 10:32
  Speaker 2: No serious economist believes that Smoot-Hawley tariff caused the depression.
• 10:37
  Speaker 2: But it did worsen the depression for a variety of reasons, not least because it caused our trading partners to retaliate against us.
• 10:44
  Speaker 2: But it wasn't the cause.
• 10:45
  Speaker 2: But again, it did make things worse.
• 10:47
  Speaker 1: One of the things, as I recall from Murray Rothbard's book America's Great Depression, that Hoover did that was counterproductive is bringing business leaders to the White House and pressuring them to keep wages up at a time when in order to keep employment wider spread, you needed to lower wages.
• 11:04
  Speaker 2: It was a fabulous fallacy that Hoover believed in, and so this is an example of interpreting the real world through a bad set of theoretical lenses.
• 11:14
  Speaker 2: Hoover knew that there was a high correlation between prosperity and high wages.
• 11:18
  Speaker 2: Hoover believed that high wages caused the high prosperity.
• 11:21
  Speaker 2: In fact, it was high prosperity that caused the high wages.
• 11:24
  Speaker 2: Hoover was putting the cart before the horse.
• 11:26
  Speaker 2: Well, okay, let's just push wages up through government diktat.
• 11:30
  Speaker 2: And of course that didn't work.
• 11:31
  Speaker 2: That made things worse, unfortunately.
• 11:33
  Speaker 2: Franklin Roosevelt had pretty much the same idea.
• 11:36
  Speaker 2: If you have to identify the single most calamitous of Roosevelt's policies, it's probably the NRA, the National Recovery Act, which was finally declared unconstitutional in 1935.
• 11:46
  Speaker 2: But the whole idea behind the NRA was to allow American producers to cartelize in order to raise prices at least.
• 11:53
  Speaker 2: High prices, allegedly, were going to bring recovery, because everyone knows when an economy is doing well, prices are buoyed, they're kept high.
• 12:02
  Speaker 2: But again, this is an example of putting the cart before the horse.
• 12:05
  Speaker 2: They had the causality all wrong, and so by restricting output, which is what cartels do during a depression, that's the worst thing you can do.
• 12:13
  Speaker 2: People in the depression were literally going hungry, and then the government is slaughtering pigs and telling farmers not to grow, it was just completely counterproductive.
• 12:24
  Speaker 1: Well, you also tackled the question of income inequality and I know Senator Phil Graham has co-authored a book just a few years ago on that subject as well.
• 12:32
  Speaker 1: The myth of American inequality yeah, and there's a lot of bad information out there about income inequality.
• 12:38
  Speaker 1: You quote in there, I think, three Nobel Prize winning economists who expressed deep concern about American equality and think it's undermining our economic system and our country.
• 12:48
  Speaker 1: But you tell a different story.
• 12:49
  Speaker 1: Could you summarize that topic for us, and especially how Census Bureau and other official statistics misrepresent that subject?
• 12:57
  Speaker 2: The conventional measures today of income inequality are of pre-tax, pre-transfer incomes, and so if you look at what people make before they pay taxes and you look at what people take home before they receive government transfers, then you get huge measures of inequality.
• 13:18
  Speaker 2: But that's illegitimate.
• 13:19
  Speaker 2: In order to measure how the economy is doing, you have to take account of the existing government policies which affect economic activity.
• 13:26
  Speaker 2: When you do that, when you look at post-tax income, so you don't look at the income that some hedge fund manager makes before he or she pays taxes.
• 13:35
  Speaker 2: You look at the income that person takes home after.
• 13:38
  Speaker 2: You don't look just at the market income they earn.
• 13:41
  Speaker 2: They're receiving a great deal of government transfer, a great deal of government income from the income taken from the richer people, higher income earners.
• 13:48
  Speaker 2: When you do that, the measured income inequality, the differences in income, fall dramatically.
• 13:54
  Speaker 2: They're still there, but they're nowhere nearly as high as are reported in the mainstream media, as reported by the economist Thomas Piketty in at these pre-tax and pre-transfer numbers.
• 14:17
  Speaker 2: But those are just not the right numbers to look at.
• 14:20
  Speaker 2: You have to look at the post-tax, post-transfer numbers and they tell a completely different story.
• 14:24
  Speaker 1: Moving on to the issue of trade, which is a sweet spot of yours.
• 14:27
  Speaker 1: There's probably no one in this country perhaps internationally as well who writes more about free trade than you.
• 14:34
  Speaker 1: You've been a big defender of the freedom to exchange, and particularly internationally, across borders.
• 14:40
  Speaker 1: Yet this has been a very bumpy year since President Trump was inaugurated.
• 14:44
  Speaker 1: Not that we didn't have a lot of protectionism before that, but we've heard lots of reasons why the president wants tariffs.
• 14:50
  Speaker 1: You hear contradictory reasons, you know to raise revenue, to bring back manufacturing jobs, to negotiate with other countries to lower their barriers.
• 15:00
  Speaker 1: What about the idea of using it as a weapon to try to get other countries to lower their barriers?
• 15:05
  Speaker 1: Do you think that'll work?
• 15:07
  Speaker 2: Look, in principle, it would be good if other countries lower their trade barriers.
• 15:10
  Speaker 2: The main beneficiaries of that, however, would be citizens of other countries.
• 15:14
  Speaker 2: Now we would benefit too.
• 15:15
  Speaker 2: Our manufacturers would, to the extent that they get to export more, but economically it's a bit questionable to make us poorer by imposing restrictions on how we can spend our money in order to get other countries to treat their citizens better.
• 15:30
  Speaker 2: It's ironic that President Trump, who truly believes, I believe that he's putting America first when he bargains with these other countries.
• 15:38
  Speaker 2: Basically what he's saying to these other governments look, I'm going to impoverish my people, I'm going to make my fellow Americans poorer until and unless you make your citizens richer.
• 15:47
  Speaker 2: And so he's putting Canada first, he's putting China first, he's putting Paraguay first, so he doesn't understand the very basics of trade, which is a very frustrating fact.
• 15:59
  Speaker 1: Well, what about this myth that our manufacturing sector has been decimated by trade and hollowed out?
• 16:06
  Speaker 2: Hollowed out.
• 16:07
  Speaker 2: It's simply untrue.
• 16:08
  Speaker 2: There is no data, no credible data.
• 16:11
  Speaker 2: There are a lot of claims but no data to suggest that American manufacturing has been hollowed out, that our industrial base has been hollowed out, that we don't make things anymore it's simply untrue.
• 16:21
  Speaker 2: The data on the size of America's industrial capacity, which is basically our capacity to physically make things, that industrial capacity is today at its all-time high.
• 16:33
  Speaker 2: We have data on it, very good data on it, going back to just after World War II.
• 16:38
  Speaker 2: It has increased steadily, goes up and down a bit, but the trend line has been upward Again.
• 16:43
  Speaker 2: Today it's at its all-time high.
• 16:45
  Speaker 2: So people who make these claims that we don't make things anymore, our industrial base has been hollowed out, they just don't know what they're talking about.
• 16:50
  Speaker 2: These claims are repeated, roger, so frequently they are taken as being true.
• 16:56
  Speaker 2: Everybody says it must be true.
• 16:58
  Speaker 2: It's not complicated to look at data on these matters and discover that they're not true, but because they're repeated so frequently, everyone assumes well, it must be the case Is that because people confuse manufacturing capacity, manufacturing output, with employment.
• 17:13
  Speaker 1: Yes, in manufacturing, I think that's one reason.
• 17:14
  Speaker 1: I think that's one reason I think that's one reason which has gone down so manufacturing employment as a share of total employment, which is the proper measure.
• 17:23
  Speaker 2: It peaked during World War II, but that's a special case.
• 17:25
  Speaker 2: If you look at peacetime, we have good data going back to the late 1930s.
• 17:30
  Speaker 2: Manufacturing employment as a share of total employment started to decrease very steadily in 1954, and it has decreased steadily ever since.
• 17:38
  Speaker 2: In fact, if anything, it's slowed somewhat since China joined the WTO.
• 17:43
  Speaker 2: It's still decreasing.
• 17:44
  Speaker 2: In the mid-1970s, which is the time that most people regard as the end of the golden era of American manufacturing, about 25% of American jobs were in the manufacturing sector manufacturing.
• 17:57
  Speaker 2: About 25% of American jobs were in the manufacturing sector.
• 17:59
  Speaker 2: Today it's less than 8%.
• 18:00
  Speaker 2: But that decline didn't start with anything that happened in the mid-1970s.
• 18:02
  Speaker 2: It had been going on for 20 years prior to that.
• 18:04
  Speaker 2: It didn't start when NAFTA was enacted in 1994.
• 18:07
  Speaker 2: It didn't start when China joined the WTO in 2001.
• 18:11
  Speaker 2: It has been falling steadily ever since.
• 18:12
  Speaker 2: You're right.
• 18:13
  Speaker 2: People think well, we have fewer people working in manufacturing, so that must mean we don't make things anymore.
• 18:18
  Speaker 2: The same thing, though, is happening in manufacturing now is what happened to agriculture a century earlier.
• 18:24
  Speaker 2: We still produce a lot of agricultural output, but productivity improvements have allowed fewer and fewer workers to produce more and more output.
• 18:32
  Speaker 2: That happened in agriculture a century earlier.
• 18:34
  Speaker 2: It's happening in manufacturing now.
• 18:37
  Speaker 1: And we've shifted over to jobs in services, but also in high-tech jobs.
• 18:41
  Speaker 2: Service sector, on average, pays more than the manufacturing sector.
• 18:44
  Speaker 2: I have a trivia question I like to ask my audiences and students.
• 18:48
  Speaker 2: So if you divide the American economy, which is typical, into three different sectors service, mining and manufacturing, and agriculture into three different sectors service, mining and manufacturing, and agriculture what year did the service sector become the biggest part of the American economy?
• 19:01
  Speaker 2: And most people will say, oh, 1995, 1975.
• 19:04
  Speaker 2: It was 1911.
• 19:05
  Speaker 2: 1911.
• 19:07
  Speaker 2: 1911.
• 19:08
  Speaker 2: We have been a service sector economy for literally the lifetime of anyone who's listening to this podcast.
• 19:14
  Speaker 2: I have two grandparents who weren't yet born.
• 19:16
  Speaker 1: I don't think we have anyone over 110 listening.
• 19:19
  Speaker 2: So yeah, literally yeah and so we are a service sector economy and today about 80% of American GDP comes from the service sector, which is what we're in, which is what we're in College, professors, nonprofit, yeah, all sorts.
• 19:37
  Speaker 2: My father worked in a manufacturing job.
• 19:39
  Speaker 2: He was a pipe fitter in a shipyard for most of his career.
• 19:43
  Speaker 2: He retired.
• 19:44
  Speaker 2: He was operating a crane in that shipyard when he retired in 2001.
• 19:48
  Speaker 2: And if I had told my dad when I was 20 years old, I said, dad, you know, I'm told that the manufacturing sector is the place to be.
• 19:54
  Speaker 2: I'm going to quit college and I want to get a job in the shipyard with you.
• 19:58
  Speaker 2: My dad would have knocked me aside my head.
• 19:59
  Speaker 2: He thought I was mad.
• 20:01
  Speaker 2: I said what are you talking about, boy?
• 20:02
  Speaker 2: You don't want to be in the manufacturing sector and we don't.
• 20:06
  Speaker 2: There are a lot of news reports out now and I find them to be quite credible that manufacturing firms in the US are finding it increasingly difficult to find workers to work in those jobs.
• 20:17
  Speaker 2: Most people want to be in the service sector.
• 20:20
  Speaker 1: Well, one other angle to the free trade argument is this whole idea of the balance of payments and the trade deficit that we're running with the rest of the world.
• 20:30
  Speaker 1: And how do we address that?
• 20:32
  Speaker 1: I mean people who just can't understand that the national debt, the annual budget deficit, the federal government runs that is bad, that is bad.
• 20:40
  Speaker 1: But the trade imbalance is something totally different.
• 20:44
  Speaker 2: I don't believe there is a single concept in all of economics that causes more policy mischief than the trade deficit.
• 20:49
  Speaker 2: People don't know what it is, and so when they hear the term deficit, which does sound bad, they say well, America has been running a trade deficit, which we have an annual trade deficit every year since 1976.
• 20:59
  Speaker 2: That's the year I graduated from high school, by the way, and so all of my adult life that's been accumulating since 1976.
• 21:05
  Speaker 2: So there's so many myths that surrounds it we don't have time to cover them all.
• 21:08
  Speaker 2: But so let me just say this that when any country runs a trade deficit, but certainly when the United States runs a trade deficit, what it means specifically is that during that period, say that year, that means we have imported more goods than we exported.
• 21:20
  Speaker 2: Measured in money, that is exactly offset by what's called a capital account surplus.
• 21:24
  Speaker 2: America runs trade deficits because foreigners are especially eager to invest in our economy.
• 21:31
  Speaker 2: Why we should be upset by foreigners' eagerness to invest in America has always been beyond me.
• 21:38
  Speaker 2: The reason we run a trade deficit is because in order to invest in America, you need dollars.
• 21:42
  Speaker 2: Well, if you spend all your dollars buying American exports, the foreigner doesn't have any Wanting to invest in America has to reserve some of those dollars by not buying American exports in order to have the dollars remaining to buy stock in the New York Stock Exchange, to set up a new firm in Greer, south Carolina.
• 22:04
  Speaker 2: And so when we run trade deficits, that means capital is moving into our country.
• 22:08
  Speaker 2: That is both a sign that, at least compared to other countries, the American economy continues to be attractive to global investors, and those investments themselves strengthen the American economy.
• 22:19
  Speaker 2: Evidence for this shows up in the data.
• 22:21
  Speaker 2: But because people do not understand what trade deficits mean, they sound bad.
• 22:26
  Speaker 2: They are very easy for protectionists to demagogue and say well, we're running a trade deficit and so that means we have to interfere with your freedom to trade, and it's simply false.
• 22:36
  Speaker 1: As you've pointed out, we all, on an individual level, run trade deficits and trade surpluses, depending on with whom we deal.
• 22:42
  Speaker 1: We run a trade deficit with our grocery store, our barber.
• 22:46
  Speaker 2: We run a surplus with our employer, who pays us Just last week, I finally read the executive order that President Trump issued on April 2nd the Liberation Day tariffs.
• 22:55
  Speaker 2: In order for those tariffs to have legal standing, the president has to declare a national emergency under the statute that he used to declare the tariffs.
• 23:04
  Speaker 2: The national emergency that he declared is not just that America has run trade deficits for 50 years now.
• 23:11
  Speaker 2: It's that America is running goods trade deficits, so he's ignoring services, which is 80% of our economy Goods trade deficits with individual countries.
• 23:23
  Speaker 2: Neither of those concepts a trade deficit with an individual country or a goods trade deficit has any economic meaning whatsoever.
• 23:31
  Speaker 2: But it's that concept, this fallacious, bollocked up concept, that President Trump presented to the American people as a reason to interfere with our freedom to trade.
• 23:43
  Speaker 2: In a world of more than two economic entities, there's no reason to expect any pair of them to have balanced trade with each other.
• 23:50
  Speaker 2: It could happen, but it would be weird if it did.
• 23:53
  Speaker 2: And so we have a world now of about 200 countries, and so it's completely normal for there to be bilateral trade deficits with any number of those countries.
• 24:03
  Speaker 2: It's not an emergency, it's not a problem.
• 24:05
  Speaker 2: It means nothing.
• 24:07
  Speaker 1: You've pointed out that what really matters in terms of economic prosperity is the human mind and human creativity.
• 24:14
  Speaker 1: It's not the resources a country has necessarily.
• 24:17
  Speaker 1: It's how the institutions and the individuals in those countries and how they utilize their creativity to increase value.
• 24:23
  Speaker 1: And it's interesting that countries like Singapore, traditionally Hong Kong, the Netherlands, UK all relatively small countries that have had great prosperity, small countries that have had great prosperity, and then you had large countries like China and India that have been relatively poor for centuries until recently, where India and China have emerged through adopting more free market policies.
• 24:45
  Speaker 1: It seems like if you look around the world, you see such evidence of what makes sense economically, the policies that work.
• 24:52
  Speaker 1: Countries committed to free trade have prospered and these protectionist, isolated countries have suffered.
• 24:58
  Speaker 1: The evidence is overwhelming.
• 25:00
  Speaker 2: We have various measures of economic freedom.
• 25:03
  Speaker 2: Freedom to trade is part of that, not the only aspect.
• 25:05
  Speaker 2: The more free are the people of a country to engage in economic activity, the wealthier they are, the higher their standard of living, the faster their pace of economic growth.
• 25:14
  Speaker 2: The evidence is clear, overwhelming, irrefutable in my view, and the examples you give are very good.
• 25:21
  Speaker 2: Milton Friedman famously in his 1980 PBS show Free to Choose.
• 25:25
  Speaker 2: He had many scenes set in Hong Kong.
• 25:28
  Speaker 2: Now Hong Kong has virtually no natural resources.
• 25:31
  Speaker 2: I think it has feldspar, and until the recent troubles of the past 10 or so years with President Xi, hong Kong had become one of the richest places on earth.
• 25:40
  Speaker 2: Why?
• 25:40
  Speaker 2: Because all value is created by the human mind, human ingenuity to figure out how to transform the molecules and atoms that are mashed together by nature into things that are of use to human beings.
• 26:06
  Speaker 2: I always imagine Native Americans wandering the Western Pennsylvania forests a thousand years ago, bending down to get a drink from a creek, and that black, viscous stuff bubbling up wasn't a resource to them, it was a nuisance.
• 26:19
  Speaker 2: It was made a resource because human creativity figured out how to tap into it and extract valuable outputs from it.
• 26:27
  Speaker 2: People do that when they are free, when they can profit from doing so and when their entrepreneurial experiments are tested in the market against the entrepreneurial experiments of other peoples.
• 26:37
  Speaker 2: And that's what made America rich.
• 26:39
  Speaker 2: That's what will continue to make America rich as long as we remain an economically free country.
• 26:44
  Speaker 1: Well, don, you've been teaching at TFAS summer programs for many years, since 2010.
• 26:49
  Speaker 1: You've had 15 years worth of students coming through your classroom there, and you teach also a lot of students at George Mason University.
• 26:56
  Speaker 1: You're passionate as a teacher.
• 26:58
  Speaker 1: What drives you?
• 26:58
  Speaker 1: What inspires you when you teach?
• 27:00
  Speaker 2: I think everyone probably has a similar feeling that they're put on this globe to do something.
• 27:05
  Speaker 2: I feel if I were put on this globe to do something, it's to teach basic economics.
• 27:10
  Speaker 2: I never tire of doing it.
• 27:12
  Speaker 2: So most of my students including the ones at TFAS they're very young people.
• 27:15
  Speaker 2: They're undergraduates, 18, 19, 20-year-olds, and most of them have never had an exposure to economics.
• 27:22
  Speaker 2: The few that have had an exposure to economics, it was an unfortunate one.
• 27:27
  Speaker 2: They had bad economics teachers.
• 27:29
  Speaker 2: It's fun to see the lights go on in these students' eyes.
• 27:33
  Speaker 2: Economics isn't complicated.
• 27:35
  Speaker 2: Its stories are very engaging.
• 27:37
  Speaker 2: You can tell these stories to these students and you can see them for the first time realize oh yeah, petroleum is not a natural resource.
• 27:46
  Speaker 2: It was made a resource by human creativity.
• 27:49
  Speaker 2: Oh yeah, if the government forces prices down, not allowing them to rise to their market clearing levels, that's going to create shortages and actually make the people who are supposed to be made better off worse off.
• 28:01
  Speaker 2: You tell these stories.
• 28:02
  Speaker 2: I'm doing my tiny, tiny part, as is TFAS, to make the world more economically literate, which will hopefully result in better public policies down the road.
• 28:13
  Speaker 1: I did a panel at Association of Private Enterprise session once, if not 10 years ago maybe with Dwight Lee and it focused on the idea of the way economics is taught, particularly Economics 101.
• 28:24
  Speaker 1: As Dwight would say, it's often taught as if it's the first course a student's going to take on his way to get a PhD, instead of being taught like it's the only course they'll ever get on economics.
• 28:36
  Speaker 1: That's why I love your economics for the citizen course that we offer, because we need to capture these students and my feeling is like I had three daughters, you know, and they went to college and one took a sociology course her first year and fell in love with sociology.
• 28:51
  Speaker 1: The other took a psychology course, fell in love with psychology, and I think we need to be doing that with economics teaching it.
• 28:57
  Speaker 1: So these kids get excited about economics and it's not all about graphs and curves that are theoretical, but about the way people make decisions and apply the economic way and the thinking in everyday life decisions and apply the economic way and the thinking in everyday life.
• 29:12
  Speaker 2: On many occasions, some students in the TFAS class have come up to me because a lot of them have had economics courses in their home universities, and it's not unusual for more than one student a semester to come up to me and say you know, this is completely different from the economics that I learned at, you know, I don't know, ohio State or wherever.
• 29:26
  Speaker 2: First of all, I do teach it as if it's the only course they're going to take, but I don't lard it down with math and formulas.
• 29:33
  Speaker 2: Economics is not about what economists do.
• 29:36
  Speaker 2: Economics is not about what appears in economics books.
• 29:40
  Speaker 2: Economics is about the world the economy out there.
• 29:44
  Speaker 2: And so I try to teach economics, as I think all good economics teachers do.
• 29:47
  Speaker 2: I try to teach economics as a way to open students' eyes, to let them see things that they would otherwise be blind to, and so just having these few basic concepts in mind helps keep their eyes open, and my conceit is that, at least for many of them, they'll go through the rest of their lives seeing things about the real world that they would have otherwise remained blind to, despite the fact that many of them have had an economics course that was loaded down with math and dry formulas.
• 30:16
  Speaker 1: Well, this has been great.
• 30:16
  Speaker 1: I hope that people will share this, particularly with young people out there who can get a flavor for the way you teach and economics, but also of your book, the Triumph of Economic Freedom.
• 30:26
  Speaker 1: It's a great book to buy young people, I think, to read about myths about times in history, in American history, that unfortunately, in many schools are being taught by people who are not economics professors or have very little economics.
• 30:38
  Speaker 1: They teach the history of the Great Depression, of the Industrial Revolution, and it's just to the rote popular history which is wrong.
• 30:45
  Speaker 2: And let me just quickly add about the book.
• 30:47
  Speaker 2: You know a lot of people might think well, you know, phil Graham's a famous politician.
• 30:50
  Speaker 2: This is not a political book at all.
• 30:52
  Speaker 2: It's not a partisan book whatsoever.
• 30:54
  Speaker 2: Phil Graham is a very accomplished professional economist.
• 30:57
  Speaker 2: This is the book written by two professional economists and our goal was indeed to make it accessible to a lay audience.
• 31:05
  Speaker 2: It's not written for our fellow economists, but it's not a political tract whatsoever.
• 31:10
  Speaker 1: And you present the myths so that people can read the traditional accounts of many of these things, that then you present the evidence that shows why those are myths.
• 31:19
  Speaker 2: Each chapter begins with several pages just documenting the myths quotations, citations to the quotations so that people can check out, to make sure that we didn't misquote someone or quote someone out of context.
• 31:30
  Speaker 1: Well.
• 31:30
  Speaker 1: I highly recommend it.
• 31:31
  Speaker 1: Thank you, don.
• 31:32
  Speaker 1: Thank you for all you've done for TFAS and thanks for being my guest today, thank you.
• 31:35
  Speaker 1: Thank you for listening to the Liberty and Leadership Podcast.
• 31:40
  Speaker 1: If you have a comment or question, please drop us an email at podcast at tfasorg, and be sure to subscribe to the show on your favorite podcast app and leave a five-star review.
• 31:53
  Speaker 1: Liberty and Leadership is produced at Podville Media.
• 31:57
  Speaker 1: I'm your host, roger Ream, and until next time, show courage in things, large and small.